The Psychology of Consumer Credit and Payment Protection Decision Making (original) (raw)

2009

Abstract

This thesis contains four studies, two concentrated on decisions on consumer loans and two on the risk of repayment difficulties and payment protection insurance. For decisions on consumer loans, two experimental studies (N 241and N242) were conducted investigating the effect of information on consumer decisions. One provided personal bank loan scenarios varying total cost (TC) and annual percentage rate (APR) information; and the second credit card repayment and mortgage scenarios varying time, loan duration and TC between different versions. Total Cost, APR and time information were found to influence choice. The effect of these factors was not consistent in all the scenarios and individual analysis of each example indicate that the influence on choice is more complex than theories predict. It is argued that these results give some support to the hypothesis that people evaluate credit in terms of mental accounts specific to the decision context encountered. Two further questionnaire-based randomised group experiments, (N242 and N215), investigated participants’ preferences for credit and payment protection insurance (PPI) and their judgment of, and protection against risk were explored. Participants were presented with credit options with and without PPI, and with variations of cover and cost of PPI policies. They were requested to indicate on a 7 point scale how much they agreed or disagreed with a number of statements. The findings showed that take up of PPI was not sensitive to variations in cover and less sensitive to price than had been expected. It was found that previous experience of taking PPI; worry concerning future repayment difficulties; and anticipated worry reduction were better predictors of PPI preferences than were other variables, including the perceived risk of repayment difficulties. The studies were considered in reference to Oswald Huber’s model of risk management and found to provide limited support. It is argued that a complex interaction between affect, cognitive appraisal and anticipated emotion need to be considered to explain credit decisions and risk management, and the theoretical implications are discussed.

Sandie McHugh hasn't uploaded this paper.

Let Sandie know you want this paper to be uploaded.

Ask for this paper to be uploaded.